are on the markets once again in 30 minutes. flags, target ignored warning signs that hari can -- hackers were baptist of credit card information from millions of shoppers. this is a bloomberg businessweek exclusive investigation. >> what did general motors know and when is the big question. we're talking about the deadly ignition switch defect, knowing it almost a decade before the recall. >> obama goes viral. to those appearances really get the president's message out? apparently so. you are watching "market makers." i'm erik schatzker. >> i'm stephanie ruhle. did you watch him?

it was really funny. >> i think zach galifianakis to a little funnier than the president. of the first time and said, they're so funny. i watched it again, and zach was so funny. serious news. is one steptric closer to getting out of the consumer lending business. the company is registered to file for an ipo of its north american finance unit. they plan to complete the ipo later this year. callediness will be synchrony financial. the biggest investment bank may be taking a hit in the first quarter. according to jp morgan, revenue from trading them under running, and m&a may follow total of 11% simply because clients are cutting back. and also the biggest losers will be barclays and hsbc. nothing toys it has hide. the government denying reports the missing jet flew for several

hours after the last reported radar contact. u.s. investigators increasingly suspect that whatever happened to the plane did in fact involve a criminal act. we want to bring you to bloomberg investigations into of the biggest names in corporate america. target and general motors. both are facing crises. our reporters have uncovered a permission about the hacking a target in the long-delayed vehicle recall by gm. we are going to dive in both of these stories now. our bureau chief is standing by to tell us what he learned pouring over the numbers. the legal documents related to problems with the ignition switches that have led to at least a dozen deaths. >> we're going to start with our legal reporter michael riley. he and a team uncovered some alarming details about one of the biggest hack attacks ever. the holiday season theft of credit card and personal information for as many as 110 million americans. michael, we have heard for the past several months that targets

explanation for how and why this hack occurred in and around shopping and christmas. i want you to fill us in on what you have found. some of it strikes me as being at odds with what we have heard from target. >> from the beginning, target has emphasized it were the victim of a very sophisticated group of hackers. the truth is, target has spent a lot of money to create an i.t. system and i.t. security system that is incredibly sophisticated. what we essentially found is that system worked perfectly well. in fact, the i.t. security fact detect the hackers. the key point is, not only did they detect the hackers, but detected them before any of the stolen data was taken. >> how is it possible then that if target new these hackers were trying to break into a system and steal customer data that

they did not do anything? what is the chain of events? >> it is really a human fail. this is not an uncommon story and security. yet some sophisticated tools. use sophisticated tools, one of which is used by the cia and other intelligence agencies around the world and to do what it did, which is detect the malware that hackers would have used to remove the data from the system. it detected them on november 30. keep in mind, the data did not start leaving the network until december 2. a sickly, there is a chain of events that goes from an initial detection target has a round-the-clock monitoring service that it has created with a vendor in india. that round-the-clock service saw up alert, so i was picking malware. they forwarded that alert to very sophisticated ticky operation center in minneapolis. the problem is, the security

operations center did not do anything. >> can you put into context, simon security office, how many of these type of alerts and my getting? one would think if you ran as a business, maybe you're getting the message is all the time and it would be easy to miss. >> there is a huge number of different products out there as a security boom. every one is selling something different. but there is the quality of alerts. antivirus put out 10 or cap without tens of thousands of alerts on a big system like this every day. the system used by the cia and that is aon, however, very sophisticated tool and the number of alerts it sends out is small and the false positive ratio is really small. when it picked up a sign that said, you have malware on your network, and they did not respond, that is a pretty serious security fail.

>> why are we hearing about any of this from target itself and what does the company have to say in response to your findings? >> they did not say much. wheret, this is a period they're facing more than 90 different lawsuits in every single -- these are from customers who had their car data stolen. the lawyers for all of those people, in fact, some of the card issuers like visa and mastercard commercial it in for this kind of data. looking for culpability, looking for signs that target missed. when we presented this data, they basically gave us a pretty pad response that said, we're still investigating. we don't want to impact that investigation. but we're not going to really tell you much more. i think that is because they are facing legal liabilities. there in the middle of their own investigation, which is set to be published later than the company later this month. a really aren't saying much about it. just hit the has

wires. what has happened this morning since it came out? have you received any additional information besides, oh, my god? >> target hasn't said anything this morning. we have gotten a lot of response from other media who were trying to confirm the story. it is a hard story to confirm because we spent more than six weeks interviewing people who worked on the investigation, trying to get a sense of what the chronology was, how things unfolded. it is a tough story to get. i think it is going to be interesting to see if target responds over the next couple of days. >> here's a comment, you go, girl. why to go. >> that's. great. >> you could've said, you go, guy. >> i spent the last 38 years for people saying, what ago, dude.

saying, should start you go, girl. >> i encourage everybody to check out the investigation. you can find it on businessweek.com right now. it will be on newsstands and your tablet app tomorrow. >> let's go from washington to detroit. general motors new for more than defect thatut a doze caused the engine to sometime suddenly turn off. the carmaker did not recall the vehicles until this month. it is now facing multiple federal investigations and wrongful death lawsuits. i want to bring in our own reporter. tell us what took so long. >> i guess it was just not taking it seriously. they clearly knew. they put out statements in minting these cars would shut off when driving. they said it was not a safety issue. the car shuts off, you can still drive it to the side of the road. i guess that was their cover for the longest time. it wasn't until they started

connecting the fact the car shut off in the air bags that did not deploy in a crash that they really started to look at it hard. 2007, which isin seven years before they did the recall. it is a long time coming. gm has amended into down go the way it should have. they're trying to figure out how it will not go again. >> i feel as if i am confused by what gm has been saying and what you and others have been reporting. truthre -- is there some to that, that gm cannot get his story straight or get the timeline straight or can't get straight quite was asked to share with us? >> they have been digging deeper and deeper every time some of gail but what about this? georgia whoawyer in do depositions and learned about some of the problems from these depositions. at one point an engineer realized, this which is different from the one we knew about will stop they looked and there been a change they had not picked up on in their own vehicles. is this kind of stuff.

more or less, every new revelation for gm has said, my bad. bad?m sorry, but my is that enough? is there a wrongful death lawsuit? if they knew about this for a decade, can they say, should have not done that, won't happen again. there has to be some punishment. >> there is the congressional hearings, doj investigation. they could be fined $35 million under a law that came out after the toyota recall a few years ago. there are criminal charges possible against individuals. there are all kinds of repercussions. one thing a little different with this case is there owning a pretty much that they screwed up right from the beginning instead of trying to justify it, which may or may not help them in the end. >> one of the things i think people are wrestling with this, how could gm let this happen to an ignition switch? you understand the industry, manufacturing. why couldn't gm just build a new switch? isn't that difficult?

>> they don't -- they did build a new switch. some parts of jim did not know the other part of gm, a supplier who change the switch and made it so it did not fail. the really hard to understand for many people is knowing full well, having car reviews of the 2005 cobalt in 2005 saint, when i drove it, my wife knocked it off with her knee at 55 miles an hour on the highway. that is not a recall because it is not really a safety issue. i think they're probably regretting saying that back then. thing thatind of your eyes scratch are headed we're like, ok, if my car shuts off at 75 miles per hour, it is still a safety issue for me. >> i would agree with that. >> and how big is your keychain have to be? a fair question. >> they're talking about just a couple of keys. it was the kind of thing -- a lot of owners a lot, i have keys

on my other cars. why do i to be careful how many keys i have on this car? that was back in 2005 as well. >> also report. gmi target is in the hot seat. you can read his great story on bloomberg.com. >> coming up, a rare bright spot -- maybe not so rare, but it feels like it. bill ackman and his campaign against herbalife. than as eight is more bright spot. this is like a fourth of july extravaganza for him. another guy who likes fireworks, the battle is escalating between carl icahn and ebay ceo. more on that in a moment. you're watching "market makers." ♪

>> welcome back to "market makers." we have breaking news. dave and busters and chuck e

cheese could be combining to form a family entertainment colossus. this is like the super bowl and disney world in star wars all wrapped into one for seven euros old -- for seven-year-olds. what are the benefits of owning these two companies? that is a lot of pretty gross pizza. >> the same company that took over chuck e cheese about a weighing a bidw for dave and busters. the benefits are uncanny. first off, both of these companies are headquartered in dallas. there's a lot of cost savings there. and the cost savings from purchase -- being a huge purchaser of food and beverage. and beverage. in the arcade games themselves. think about this combined company, they would have about 75% of the market that is huge. that said, however, these establishments have been facing

lots of competition from games at home. i don't know about your kids, but many kids want to stay home and play those high-definition video games from the comfort of their own homes. that is were the competition really is for these establishments. they have got to really bump it up and offer more and more services. >> maybe a little laser tag. >> where are they in the sale process? bythis company is owned another private equity firm, and they have tried to sell it before. the sale process was not successful in those cases. this one seems to be a lot further along in a lot more robust. that is in part because dave and busters has been performing well, even though it does have quite a bit of debt. we are about the second round of bidding. the next 45 days or so, we should have a conclusion to the sale process. >> that is just a lot of tragic behavior. how do we get hit sitting at

home using her ipads into our emporium with kind of dirty video games and unhealthy food? that is like a bad snap shot of america that leads to really successful business. thank you for the latest. crisisthat the financial is more or less over, time to look for the next one. the seven sins of wall street. a new book analyzes the relationship between wall street and washington. it draws an alarming conclusion. >> i can't believe there are only seven sins. >> regulation has is to choose utilized, in other words, we're already sown the seeds of the next crisis. bob is with us in new york. are you ok? >> i would say 700 fans. what are they? >> i had to cut it off at seven because there needs to be something for the sequel. >> got it. >> or volume two. "to my publisher next year. >> what are they?

>> you're putting me on the spot. >> you brought them up, sell it. >> let's start with lust. >> these are the seven sins. these have been around for a long time. pride.ly, it is that is the big one. without excessive pride, all of the other sins are less likely to happen. if you believe you are a master of the universe and believe all of your success is due to your genius and the government should do whatever you tell them to do and the customers should take second fiddle to your desires and you can trade against your customers, then everything else kind of falls into place. >> industries, institutions, only become these mammoth beast when their environment lets them. they only become divas when they are serviced. >> absolutely. that is why the subtitle is "washington lackeys."

the quattro biggest depository banks are 50% bigger than they were in 2007. >> that is a crucial point to make. in your book and right here right now, what you're saying is, you're not putting ourselves in the elizabeth warren camp or the numerosity cap, or champion for regulation. you're saying the whole system is bad and needs to be rethought. >> what have the regulators done in the last eight years that has inspired her confidence? >> not that much. >> let's be honest about who the regulators are, who has those jobs, and how they're compensated. we're talking about complex financial instruments. the people are trafficked them. the people who get paid millions of dollars a year. we are expecting someone who lives in a claim, virginia who gets paid $95,000 a year to figure out how to rein in and regulate these people? >> i will go one step further

and say that guy that makes $23 million a year that is sitting on the top of the organizational chart doesn't know what is going on in his own organization and cannot police it properly. >> then who knows? >> nobody. these banks are too big. nobody knows what goes on in them. and other-frank regulatory action doesn't fix the problem, how do you fix it? is, your institute some form of glass-steagall or you have a bank -- >> you sound like elizabeth warren. >> sometimes. if you make the bank small enough, it can do within reason whatever it wants and its failure on impact anybody but the shareholders and the employees and the taxpayers don't have to worry about it. >> it is a glass-steagall that would prevent things from getting too large. while it was in place, there

were some very large banks that did not do investment banking -- >> but nobody rushed cap week in meetings at the fed to save capitalism. when con illinois went down, it was a big deal, but it wasn't like them bernanke and timothy geithner got all of the chieftains of wall street together -- >> hang on. as smart as you can get. to the people who are in these regulatory bodies actually understand what smart regulation is and how to implement it? >> do we have evidence they do? i don't necessarily know. i don't necessarily know what smart regulation is. when you get these organizations are so mammoth, when their own bosses don't know what is going on, how can we expect the regulators to? >> lehman brothers. >> you go girl. >> lehman brothers by definition

wasn't too big to fail. , girl, tea.you go >> i heard him. this kind of thing happens every day. lehman brothers wasn't too big to fail, wasn't saved, but nearly brought down the financial system. it wasn't a commercial bank dabbling in security underwriting. how does that fit in? >> that was the last financial crisis. >> but what is to stop another lehman brothers? not so big as bank of america or citigroup -- >> lehman brothers was not gambling -- >> yes, yes, in another self, enough to threaten the money market industry and jaw must bring the financial system to its knees because of the interrelationship. >> absolutely. it was a nontransparent financial institution that was huge and too big. now you have an transparent financial institutions that are even bigger and take deposits

friendstomers like our come as civilians out on the streets. >> i do think inside these organizations, i think those who don't realizeors it. take the london whale. do you actually think he believed he was going to be putting the bank at the kind of risk he did? no. he was doing well in his traits. people liked it. they said to double down and he did. he did not realize the ramification of the kind of trades he was putting on. i think bob is right. >> i'm not saying bob is wrong. i'm just asking, where do you draw the line? that is the challenge. if this becomes a regulatory issue, then we go back to trusting people in congress and trusting the regulators to figure out where to draw the boundaries. >> one last time. >> that doesn't inspire a great deal of confidence. >> let's put it on its head.

>> bring it. >> i'm more concerned about what to big to fail has done to our democracy and what it is really done to morality, which is not a word you hear on market makers that often. these banks -- >> because we are immoral? we don't have morality. is that what you mean? tom keene -- >> he is the reverend. >> continue. >> but i can't. when was this a comedy show? >> every day. >> you have institutions that are above the law. they are above the law. the attorney general of the united states said that to congress. he said, these organizations are too big to jail, too big to prosecute. to me, that is -- >> are they weren't when they were doing so well. everybody loved them. remember how people felt about

jamie dimon four years ago? >> but what about now? >> may be worn buffet is too big, because we love him. >> he is not trying to rig the electricity market in california. he is not being cited for money laundering for iran. >> that we did not feel that about the banks five years ago. after a crisis we can say, look at all of these horrible things. if something happened that at berkshire hathaway, you might be writing a book in for your saying, warren buffett, he is just to damn big. >> the point is to figure out what went wrong. >> what is still going wrong. which is what my book is about. it is not after the crisis. >> and i thought it was about lust. >> editor and investigative reporter here a bloomberg, author of "the seven sins of wall street." >> when we come back, we're talking about another big guy.

getting advice from the previous opponent. we will look at the fight over paypal. >> is it unpresidential or clever politics? ♪

>> live from bloomberg headquarters in new york, this is "market makers." 10:30 in new york city. you are watching "market makers turcotte we're going to talk about carl icahn here at the ebay ceo is stepping up against carl icahn. met with carl icahn's former foes. how does this impact the fate of paypal? i want to bring in bill george, a professor at harvard business

school. he joins us from minneapolis. it sounds like you are sort of bringing together a carl icahn support group. is very tenacious. i think he is barking up the wrong alley. ebay is one of the great performers on the stock exchange, up 465%. it has a great strategy thanks to john donahoe restructuring. i think carl icahn is going the wrong way. i wish he would go back to revitalizing more companies that need help. >> why do you say carl is going the wrong way? >> well, ebay has proven that paypal and their marketplace work well together, give them a great platform. if i were on that board, i would be saying the opposite. look at the way google and facebook are moving here and what can we do to broaden our platform to be more successful? we do not want to be like nokia

or blackberry within narrow platform. we need to make it more mobile and make it available to everyone. what are we going to add to it? i think taking a money -- a company apart like this makes no sense to me. >> even if ebay is a great company and even if donahoe is doing the right thing, when carl icahn comes banging on your front door, what do you do? course.tay the you make sure that you are prepared. you believe in the strategy and stick to it. you analyze your business. you know that it makes sense, that synergies are not mythological but are real. and the board has the chemistry to come together. are outstanding directors. they have a really good board that understands tech p request of them have been ceo's of major firms. they know they have to be on the

leading edge, not behind the times and trying to get in. that is unfortunately what his -- what is happening to microsoft. i would say let's move forward. if you look at the nominees, i do not see how they compare with the kind of people on the boards today of ebay. are multiple facets to carl icahn's activist campaign against ebay. you mentioned the idea that they should span off a pal. he is also trying to get his own directors on the board and perhaps even oust the ceo john donahoe. what do you believe is karel's ultimate objective here? looking at the situation, -- what do you believe is carl's ultimate objective here? >> i think he wants to make money in the short term. i think that is his only goal. he does not know anything about this business. he has been around for a long time. he was one of the raiders of the

1980's. people like ebay in those days, the older companies would pay them off to go away. i think he would like to get some kind of action like spinning off paypal or a short-term move to raise the stock price of he can get out. >> would you characterize this as the worst of activist bullying, using tactics on a platform he does not understand? >> i think it is pretty bad. i have seen worse. but he has a right to do this. i think the board has a right to just say no. >> when you say you have seen worse -- give us an example. >> if you read the "new york times" on monday, you read a couple interesting articles. one was justifying this interaction with paypal and on the attacks with herbalife. -- is itn a second fair that we would say bill eichmann is the only one using these aggressive lobbying tactics -- is it fair to say

is the only one using these aggressive lobbying tactics? >> these activists are very tough. they have made their success by being very tough and very tenacious and using the media to make an attack to get a lot of publicity. you are not hearing a lot from other shareholders. i did see one of the happy shareholders at ebay who has been in the stock for five years saying, look, we made a lot of money and where were you? if i were a big shareholder -- i wish i bought into that stock five years ago. at that kind of increase, it is pretty remarkable. i would be very happy and would be looking for ways to keep that going forward. >> you brought up the example of herbalife and bill ackman. right now herbalife stock has done great cents bill ac -- has

bill made hisce short position. what if they uncover evidence of a pyramid scheme? all those shareholders who feel good about the fact that the stock is doing well will not feel so good under those circumstances. then how will the board look? >> it is always a risk. there are potential product issues. there are risks in the financial community. this business is about risks. you have to take risks. i and not an expert on herbalife. i have just been watching these battles. i think we are not hearing enough from the people who hold 90% less of the shares. i am much more in the warren buffett camp that says we're going to run this company so that shareholders are going to stay. we have to hold onto long-term shareholders. i do not know enough about herbalife to comment on the detail. i know enough about ebay to say that is exactly what john

donahoe is doing. he is one of the truly outstanding ceo's and america, and we are proud to have him. i would be if i were a major shareholder of ebay. so i think we need to not back off to these people because they are aggressive. >> in the herbalife example, people have not backed off to bill ackman. even yesterday after the investigation was announced, shares were down only 7%. there was an article on monday saying bill is spending an enormous amount of money, paying off allocations and would you tie that to the ftc investigation? that would be really dead for the ftc, obviously. >> i do not know. -- they would be really bad for the ftc, obviously. >> i do not know. i wish i knew more about it. i think there are enough red flags to take a look. knowledge, he my

is actually for herbalife. in the case of ebay, i think this board needs to be very resolute and stay the course on their strategy and tactics and keep going forward. they have to worry about a lot more than carl icahn. they have to worry about what competitive platforms will come from microsoft, google, facebook , or others in the area. great global franchise. >> we have to leave it there. special thanks to you. there's no better authority on this subject than you. thank you. >> coming up, more on what we just discussed with bill george. the fight against herbalife regulators. an investigation into the company announced. what are the prospects of the ftc? ♪

>> welcome back to "market makers." i am stephanie ruhle with erik schatzker.

and finally got his wish. the ftc has opened an official investigation into herbalife shares -- into herbalife pier chairs yesterday plunged 7%. another 5% today. the company says it welcomes the probe and it is confident that bill ackman's claims are wrong. i want to talk to the dean of business school at new jersey university. welcome. is a quotey, there from you and forbes -- it would take a major event for the ftc to go after herbalife. it is not impossible but not probable at this point. that was now eight months ago. you do not think it would happen. it has. what does that mean? >> there has been agile movement on the ftc's part on issues pertaining to an multilevel marketing. 2013, there was a

case brought on another front to rear from the ftc's position. back in the summer, herbalife stock was up. the ftc was quiet. , thereween then and now was an investor alert issued. and then bill ackman cap kepture on, -- bill ackman pressure on and we have seen politics get involved. >> you have studied this for 17 years. you co-authored an article with the senior economist at the ftc. what would it take for the ftc to make a decision to conduct an investigation like this? >> they have to have a lot of unanswered questions. >> there were unanswered questions 12 months ago when bill ackman started this per se did -- crusade against herbalife. >> they have had a year to come up with really good data to answer those questions. all of the answers have been

very general. >> meaning herbalife? >> yes. >> do you question that they have been showing the retail sales numbers? when they say they have nothing to hide, do you wonder why they do not publish the numbers? like they would argue that they have answered the lightman's questions and it is for the public to decide. -- they would argue that they have answered till ackman's questions. >> looking at ebay, they know the business model. in this case, having talked to a lot of investors over the past year, i would bet there is still a lot of ignorance about the business model which has been driving really good numbers for herbalife for a long time. >> does that make you feel like it could be a scheme? it kind of feels like a bernie made off conversation. >> there is a lot of -- it feels like a bernie madoff conversation. >> there is a lot of conversation with distributors

and looking at retail sales. >> how tough is it to do with in ftc did with amway back 1979? amway saidmway case, here are our safeguards and here is how we enforce them. the law judge said, ok, we get it. in fact, companies have since bastardized the standards put forth by amway itself. what appeared to be safeguards and the pyramid scheme in 1979 ons not exist any longer paper for these companies. >> since 1979, has there been another example that big, and would herbalife be even bigger if we do find them come you know -- >> i remember revenue in 1979 , and there has not been any investigation that big.

there have been successful cases along the way, but they have not been as big as this one would be. >> how difficult is it to prove that a multilevel marketing operation is a pyramid scheme? >> it is getting the data that is difficult. my colleague and i just published our second paper recently. he has been doing this over 20 years. getting the data is a real problem. >> didn't not have subpoena power? >> they do. -- do they not have subpoena power? >> they do. you can also require questioning , not just looking at documentation. in many cases, the companies have been able to delay and to put forth the data that was less than forthcoming. like one thatse was only a $20 million case that

started in 2007. the lower court decision in 2012. waiting for the appellate court in 2014 -- seven years for $20 million case. >> we're talking about a multibillion dollar company. going to handle this? will they handle it at a faster pace or does it come down to the tactics that herbalife employees do to put the responses and requests off as long as possible? >> the public pressure will be great. it will be interesting. the public pressure will be very great. herbalife wants this done. they want to get out -- >> we have got to go. but how surprised were you yesterday? >> i was surprised that the timing. >> all right, thank you so much for joining us. no one is a bigger expert on this subject. dean of the business school at the college of new jersey. >> coming up, late night with

president obama. seems like he never turns down a chance to go on a talk show. what does he get out of all of this? let's look at what happened on funny or die. isn't like to be the last black president question mark >> seriously? ♪

>> this is "market makers." from jimmy fallon to zach galifianakis, president obama has shown he is willing to try all sorts of things to get his message appeared how much of an effect do these appearances have? ,e have looked into the matter the white house strategy. what have you found? >> the interesting thing is we thought, let's look at broad approval numbers -- do you see a bounce when he goes on with jimmy kimmel or "the view"?

it turns out he does not. i asked white house officials what they are getting out of it. their answer is that each time he is going on, they are targeting a specific audience. nothing made that more clear than that funny or die video. 14 million people watched it. on the first day, 19 thousand people picked over to healthcare.gov. it is incumbent in there goal. >> is it because social media has become so big? every turn the clock back and a president or candidate went on johnny carson -- is it important that he chooses the right person at the right time? the fact that this is online on, everything will media outlet can cover it. is it significantly more impactful now than it was before? >> the interesting thing is you look at how television has not become the primary place to do these type of events. you are searching for the web. you're using google hangouts and

reddit. the white house has to try all different types of lifeforms. when you look at the clinton administration, they were talking about how much coverage they got for doing mtv which was edgy at the time. they have to find new ways to reach people. social media is the way now. the white house is trying anything they can to get their message out. >> should we not be giving the white house such a hard time? some say that he is pandering to the young people. is it really cheap? they're going to outlets that younger people actually use. i do not know many 24-year-olds who watched state of the union addresses. >> the white house knows one he think -- young people -- the white house knows one key thing young people are crucial. when it comes to social media, their coalition relies on the enthusiasm and support of young

people. you use social media to get young people. republicans said that the "between two ferns" segment was maybe beneath the office or something that criticizes how they do things. they will look back and that is just going to be how it is done. the potential for the white house's objectives. what about the shows themselves -- how big of a boost do they get from putting president obama tv or online? >> without question, that benefit. "if you guys could have their had their "the view" highest ratings in years. so did the jimmy kimmel show. you're getting an endorsement from the most powerful man in the world. every company benefits when he participates in these things. >> thank you very much. our white house reporter phil mattingly with the white house's

social media and tv strategy. >> he is also part of the younger generation. he can tell us how it works. past theroaching :56 hour and bloomberg is about to take you on the markets. we're going to look at fannie and freddie. shares are surging because of an exclusive interview peter cook had this morning. a top senateo republican. what was the take away? >> he is the top republican on the banking committee. more importantly, he is the cosponsor of this new legislation winding down fannie mae and freddie mac. a big question has been how would this legislation treat existing shareholders? funds interested and that. what i was told in the interview today is that the legislation will be leaving it to the courts. >> i think there is a strong argument to be made to the private sector investors -- if

they rely on up public-sector system, they should be able to counter that. the response is that the system was clearly moving into conservatorship and the taxpayers did put $180 billion and do this. i honestly do not know how the court is going to rule on this. but i think the answer we get from the court will then guide congress as to how we move forward. >> this is a big deal because this legislation could have wiped out those shareholders. even if this bill passes, it means that those preferred shareholders still have a chance at recovery and maybe even making a lot of money out of their investment. >> quickly, any sense that tim johnson, the cosponsor, feels differently? >> i have not spoken to him. but it was candid analyst legislation. o would not be talking this way if he did not work this out with johnson.

it is a bipartisan bill. >> thank you. back in two minutes. ♪ . .

>> live from bloomberg world headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> he is the voice of the tech millenials, reddit cofounder, alexis ohanian on the future of the internet and where the 21st century will be made and not managed. >> why target just stood by as hackers stole millions of credit card numbers -- it is an exclusive investigation from "bloomberg businessweek." >> we put ourselves to the chest -- to the test. big changes to the sat. eric and i will see if we can do one of the prep courses.

makers."ack to "market >> we're going to begin with the new speed -- the things you need to know right now and top business stories from around the world. yet raising the price of its amazon prime membership going from $79 a month which many people consider a deal to $99 a month. andget today shipping streaming online movies and tv shows. amazon has been warning of a price hike because of increasing fuel and shipping cost. gonen that consumers have back to spending after all the bad weather. retail sales rose more than expected -- the first increase we have seen in three months. figures fell by more than originally reported. a former goldman sachs vice president who called himself fabulous fab has just gotten hit with a fabulous fine. a judge ordered him to pay the sec a hundred $25,000.

most of it is a penalty. the rest is part of his bonus, inting in -- given back 2007. you know the rest of the story. do you feel bad for him? bad for fabulous fab? i feel like he was thrown under the bus. >> i don't think he's got 825 grand. the foolishly wrote e-mails that got him into a heap of trouble. >> he clearly wrote the foolish e-mails, but he was a young kid and part of a bigger system living in the infrastructure of a broken business. i feel bad for him. >> what did the goldman sachs former cfo say in congressional about whathen asked he said in those e-mails?

i wish that were not in the e-mail. >> the partners just say it in assr egg -- in their dig office. our guest is one of the most common and investors in the community. he founded reddit in 2005 and lately he has been traveling the country, talking to young people about the possibilities of the internet and are mounting his "without their permission -- the 21st century will be made and not managed." you at 277 colleges, 250 stops. what is your biggest take away? what did you hear over and over? >> you can't help but realize this generation in particular, the millenial to drew up thinking we are going to go to school, there'll be a job waiting for us, we realize those jobs aren't there. i think more than any generation, we have this

ofortunity to create careers our own instead of just finding them. is the silver lining, which is to say so many generations had to put out their passion or did so because the opportunities and the job market where there. least gett, we can at started and see entrepreneurship across the country. interestingally point. i'm 38 years old. when i got out of school, i did not ask the question that i want to invent something because there were great job opportunities to make a lot of money. is that why these kids are getting creative? 40-year-olds, it's not that they are not created, -- not creative, but they had opportunities and did not need to be resourceful. >> it is part of it and then you combine it with accessibility to start a company is more possible than ever. we started reddit with a laptop and internet connection. the barriers to entry have lowered so much whether you want to start the next facebook or

the next fashion line or whatever. entry the barriers to that much lower question mark hewlett-packard was started in a garage will stop apple, steve jobs started apple in a garage. those kinds of stories make it seemed to me as though the barriers of entry were not that high way back when. the barriers are lower now. i think you can find there are examples of that dorm room or garage -- michael dell, ken griffin -- what is phenomenal is the speed with which these companies can grow. minting more young billionaires and we've ever seen before and see these companies accelerate. that has come on the back of software. wearing right now is something apple and samsung are trying desperately to copy and this was started by a bunch of friendly canadians two and

half years ago with a crowd .unding campaign that story from smart silicon valley investors was supposedly impossible. they said hardware is a dead end and they turned into the internet and this is one of the best stories and hardware. are in anyt see we sense of a bubble mode? i started working in finance in 1997. in 99, the internet was so cool. all the people of my training programs walked out and said you are morons and we will never come back. they went to start up send it was a disaster. a year and a half later, they are dialing in which a bank. -- they are dialing deutsche bank. >> business cycles are bubbles and bursts. you always get a little different when you say it's dangerous, but what is undeniably different is the cost of starting these companies is much lower. steve and i literally only had

12 grand in the bank to start reddit. you would have needed to raise far more money for proprietary software. store --ke the app it's amazing, candy crashes talking about an ipo. there are marketplaces that did not exist. as these companies fade away, it's not the failure of these heavy investment companies. think these younger folk just entering the workforce are a as afraid of failing as iron member being when i was that age? the generation that got participation trophies for everything. eight for basketball camp and i still can't dribble. talking to these college students, what is more apparent than ever is when you've got nothing, you got nothing to lose. there isn't another job they are

looking forward to. >> do you like it better when you see entrepreneurs in their 20's who have tried two or three things, none of which have worked out? but you respect the fact that they try? >> yes and it's not just a badge tohonor, it's a sign i want invest in or take a risk. thesee time and time again, the hottest app was an app called secret. i'm an investor because one of the cofounders -- >> is that why you think it was the hottest app? regardless, the app has been doing very well. or five years ago, i invested in this first company which failed miserably. is see time and again, this >> but want to see -- from a psychological standpoint,

if you turn the clock back 10 years, if they 24-year-old could walk out of being a young associate at a law firm or bank. he or she would be tortured because they are counting the money they were not making. they are looking at the former members of their company and now from a psychological standpoint, it's easier because it's not that their peers are making a lot of money doing any other thing. trendsve a few of those and i asked how much they enjoy what they do. i know it has been a tremendous privilege. one of the great advantages as you never find yourself looking at the clock going why am i still here? this is your life. it's incredibly stimulating and fortunate to be able to do it you are passionate about, not just something that hays the bills. >> is it possible we are

the need for risk-taking and the need for entrepreneurship? world still needs people to do the jobs that don't require as much creative thinking, as much entrepreneurship -- i don't know what it is, could be middle management. andd be a doctor or surgeon you have to take risk, but it's not the same kind of risk you are talking about as an entrepreneur. >> i would rather air on the side of saying listen -- the internet and software is changing the world and you should get started trying to take a chance on something, especially while you're still in school. the same skills you learned by s help you inrisk the workforce and are always be people who say i don't want to start a company, but those skills are going to make them

much at her employees. >> you are here with us for the hour. can't wait to continue this conversation. when we come back, we will talk about the hackers who targeted target and tell you how they could have been stopped before of dollars.lions this is an amazing story and you will think differently about target. >> i am so glad a lexus is here. how to code learn during the break. what will the new sat exam due teste test prep injury -- prep industry? ♪

>> one third of americans had their credit card or personal information stolen in the target hack last year.

bloomberg businessweek did an extensive investigation asking how did it all happen and have donerget could more to stop it. here's a look at what did happen. >> the first time the public heard target had been hacked was on december 18, 2013, when the blogger investigated the company was investigating a massive breach. so what did target know and when did they know it? hackers again capturing credit card data on november 27. three days later, a sophisticated security tool spotted the malware. for theaid $1.6 million program because of its ability to detect hacking in real-time. indiaa security worker in spotted it and sent it on to the minneapolis center. it is overlooked. detectcurity tools another version of the malware and it goes undetected. had target acted on the alerts

at this point, they would have been able to prevent one of the biggest data theft in history. instead, for more than two weeks, the hacker software collected credit card information and bounced around the world to places like moscow. 12, federal law enforcement notifies target they are seeing suspicious activity. the retailer hires an independent team to start at a forensic investigation and on december 15, target confirms it has been hacked and remove the malware. target issues its first public statement on december 19th, revealing up to 40 million cards may have been compromised. returned,ter, jenny target notifies customers that in addition to credit card theft, personal information for up to 70 million customers has also been stolen, affecting as many as one third of american consumers. >> this is an amazing story.

you just saw a great summary of the timeline. hasguest, alexis ohanian read it. guests is ar professor at john hopkins coming up to us from baltimore this morning. this is your specialty. you understand hacking and security and you have read what our reporters at bloomberg businessweek has uncovered -- target had 300 people dedicated to data security and still warnings.ese how is that possible? is it explainable or is this the kind of indictment of target that it reads as? i think this type of thing is indicative of how difficult it is when you run a large enterprise to get actual security. they had every warning and every indication something was wrong and they had to filter that

through all the different indications that they got on a daily basis. one was marked as much more severe and the fact they still did not take any action and did not respond to it shows just how important it is for companies to be vigilant and not just purchase the right products like they did in this case, but to also have a team available to and move when something wrong like this -- >> it sounds like you are giving target a pass? >> not at all. i think what they did is inexcusable for a company that holds customer data like this to have such a breach when they had all the signs that it was happening, they are definitely to blame. uncommon,lso not that the level of readiness that exists in companies and in particular that existed before the target breach, it's like

they were waiting for this to happen. how robust no matter a security system you make, a common point of failure is humans. more often than not. are there specific steps target will be taking to resolve this take untilg will it the united states get a chip card system like the rest of the world has? a chip card system -- and i have not seen the particular design, but having some hardware support for this is a good idea. one thing to keep in mind is there is a mechanism target was using to automatically block malware when it is protected and that is turned off. a lot of times when you have something that is automatic thomas you end up with a system that goes down many times because of false alarms.

some sort ofave competent and well trained human in the loop to make decisions about when things need to shut down and when things can run the way they are supposed to. >> in your experience with startups and other tech firms that do business on the internet and where data is as important as it is in target's case, do you find people not appreciating the need for a competent, well-trained human to be in that security role, which is not a management role, which is not a highly paid role? >> i think it's vital. as more and more of our data becomes entrusted to our companies, it's going to become more and more imperative that these companies take it seriously. actually solves the problem and keeps customer data safe is the right people making the right decisions. it seems like they choose a route that is suboptimal.

it seems like they will be paying for it. >> do you think it is a mistake or they sought and just did not take seriously enough, maybe because they are too old school? justwere thinking it is before christmas and how my going to stock my shelves with mr. potato head. >> i disagree that's not somebody who is necessarily well-paid and it may have been a management or organizational problem. you need to have security professionals who are really good and they're going to have to be well-paid and you are going to have to have people who take every alert seriously, especially those marked as high priority as these are. do you see corporate america ?esponding to the lesson are people inclined to do what target did, maybe not be as

concerned? they weren't selling software but were they as concerned as they should be? >> i think the target breach was a wake-up call for a lot of companies. i've seen it in my own consulting business. the cost from a pr perspective is so much higher than the cost of just having good security. the irony is target had undergone the cost of buying the security software, of having 300 people managing security. companies are looking at how they manage security and making sure becomes a higher priority and reporting goes to a higher level inside the company when they suspect something might be wrong. >> what is it going to take for target to get that consumer confidence back? this is a nontrivial number of americans that have been affected. >> i think target has a long road ahead of them.

what i have seen just talking to become they have synonymous with losing customer credit cards and customer data. to prove going forward they are going to be a company that cares a lot about their customer data. it's not an easy thing they have to do, which is one of the reasons a lot of companies are looking at this trying to learn from that lesson. >> thank you very much. he's a professor of science at johns hopkins diversity. alexis ohanian is sticking around. ♪

>> coming up, this brings us back to nightmares from high school. all of this talk about the new

sat. we decided to see if we still have our test taking chops. >> if you are homesick for a meal, we will talk to a ceo of a unique delivery company. you are watching "market makers." ♪

>> live from bloomberg world headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> welcome back to "market makers." >> it is 11:30 here in new york city. another day when you wish we were going live during commercial because this show is great during commercials. sat will be changing big-time in 2016. i'm glad i don't have to take it again. we thought we would try our hand at some current sat questions. we will need some remedial help.

>> the tone the passenger took with the flight attendants that they were so blank that they remain far from him to avoid a confrontation will stop these are one of the problems that we will be taking this morning. what did you answer? >> you can see it here. >> we nailed it. we all got it right. irascible is the answer. how did you come up with it? >> i copied off of eric. time, i was thinking i would never use any of these words and normal speech. it did active reasoning. >> do you use any of those words westmark >> he does. hold on a second.

speaks to test taking skills. i don't use any of those words but i was able to knock out insipidus is >> such a great word. >> that speaks to what we need to be taught how did active reasoning works. knock it down from five options to two. -- five options >> let's move on to the math problems. >> you don't even know how the three of us did, -- >> this is the one i've blue. the remainder? i answered one, you answered i don't even know the number. alexis answered one. i guess we both got it? is one.ect answer

>> no one is keeping score, right? >> we had four questions total. and the producers tell us to -- how did we do against one another? >> stephanie got them all right. i said i was going to blow this when you are going to ace it. >> do you know why i did well? i'm a better test taker than a student. that go to students all different schools, how are you evaluating them? it gives them an unfair advantage. you just went to all these universities. >> you have been to see these students and you talk about the challenges they face at university. how are they being evaluated? are they being evaluated on their writing skills or classroom participation? >> more often than not, it is a mix. one of the biggest things i

noticed is there were a lot of students who are not necessarily pursuing careers where they needed to worry about their gpa. they were just looking to graduate, yet they just obsessed over it. >> that is not healthy. >> i blow their minds because i say we don't ask for gpa when we a muchwill stop it from stops being relevant when you graduate. that's not like saying stop going to your classes but consider what you be using your time in school for. there is time to start doing stuff as opposed to -- >> think about the expense involved in taking these standardized tests. should money be spent where these universities can hire more people to read essays? does that show who they are? >> why don't we talk about that with our next guest? >> have a feeling she's going to say tests are important.

>> i never took the sat because i went to school in canada. at the ceo of princeton review will tell me what i should have done better and we will ask her about this idea that perhaps the the --king disadvantages those who can afford it. ♪

>> welcome back. .ur guest is alexis ohanian it's a test everyone loves to change the sat is set to massively in the next three years. the group behind the test will be partnering with the con academy to provide free study material. what will that mean for the billion-dollar test rat industry? the ceo of one of the largest -- companiespany

joins us. tests, probably because i took the princeton review test. >> i was quite entertained by the discussion because you are clearly a closet geek. >> i'm out. >> there are all of these changes happening like getting rid of some of those words. those hard vocabulary words will not the there anymore. optionalke taking the as say -- it will be optional -- i'm a little concerned about that because that is something women do really well on. >> before we get to that, if it is a good way the college board is streamlining the sat and eliminating these questions, does it not become less necessary for someone to go to a princeton review or kaplan to prepare? rex here is one of the

things the college board did -- they said test wrap is necessary. and they said we are going to make free test wrap available, they say people need to prep. this is a high-stakes test. it is used for college admission and everyone should be able to asp, not just wealthy people we have talked about, but kids in the inner city also. that's one of the things i most proud about is the work we do in urban school districts. it's not just about the test. where yout knowing want to go, can you get the scholarships or financial aid? >> high-performing students who come from low performing background do worse on these tests than their peers from wealthier backgrounds. you haveed about what been doing to democratize it for

everyone. what are some of the big changes we can expect to expand the options? rex we have been offering free practice tests for a long time so it is nothing new. it doesn't actually make annie difference. he's ano mention that awesome teacher and former princeton teacher. we have been offering free online, you can come in and do a toctice test, it's not going change anything. >> how do you get people to pay? your business is predicated on getting people to pay. getting actually about kids into college. >> it's not a not-for-profit is this. >> we are. we also do an awful lot in the inner city played -- paid for -- >> we are not questioning that. we are just talking about the test prep art of your business.

the changes the college board is making threatened in any way the business you have repairing students to take the test? >> we don't think so. like everything else you do in life, every thing being prepared is what you need to do. nothing has changed in the test that make that different. >> how will the inequality factor change? if it is just as necessary now as it is today, and it costs a lot to subscribe to your services home of the very same situation is going to perpetuate itself. the wealthy will have access to your services and is not so well to do will have a harder time. >> let's be clear about the inequality. the inequality is not the test prep or even the test. kids in thehese inner-city schools in low income

districts are not well-prepared generally. so it's arts off before you even think about test prep. that's what causes the disparity. the initial disparity, but isn't it exacerbated by the fact that the withhy can afford to study kaplan and become even better prepared? they go in and prepare to a set and those who are ill-prepared don't have anything to it them up to the median? >> let me back up for a minute and say i'm just as concerned about the inequality. let's start with that as a baseline. as far as i'm concerned, the best you can do is get high quality test prep into the school district where they can make a difference. it's not just about the test. it's about thinking i might even

go to college. it's about having a teacher who is a mentor who says you can do it. instead of saying college is not for everyone, which is what you hear, you can say college is for everyone. if you have teachers mentoring these kids and providing support, can you go to college? >> with the sat changing what is in the test, what are you going to have to spend to change your curriculum? >> we do spend an awful lot of toe and money on these tests deconstruct them and understand what is in them. >> before we let you go, given you share this concern about inequality, would you at the princeton review be prepared to set aside a certain percentage a your revenue to fund charitable organization that would go into the inner cities in a dedicated way and deal with this problem?

segue becauseice we have the princeton review foundation which does do work in the inner cities. we work with the united way and starte test trap, we working with these kids when they are freshman in high school and start looking at whether there is any readme a needed, enabling them to think about the notion of college. the princeton review spends a lot of time and money on that. >> thank you for your insight and your work. and again for helping me do so well on the sat. sticking with us is reddit cofounder, alexis ohanian. >> when we come back, something alexis, stephanie and i are all interested in. the finest food from across the country is just a mouseclick away. ♪

>> you are watching "market makers" on liberty. today, alexis ohanian. what say you live in kansas city and you are dreaming about new york city bagels. what do you do? get on a plane? full belly has a utter idea -- this is a startup making a business of delivering famous food nationwide to your door. ceo is with us now from san francisco. how big a business -- as you can see, alexis is interested. he is an adviser to your company. how can you build a big enough business to do this? how many people are prepared to pay to get a call from manhattan delivered to kansas city? >> it is a great question. and specialty food business is an $80 billion business. >> $80 billion? $80 billion.

only about 15% of that takes place online. think of the omaha steaks and harry and david. the one 800 flowers. those are the biggest players in the food gifting space, which is at least a $10 billion market online. omaha steaks alone is doing $500 million in sales and they are just selling stakes they control the supply chain of. they have the cow, they kill the cow almond aipac the cow, they shipped the cow. generation that you have the capacity to empower tons of smaller folks. create a market that is much more democratized, similar to what a company like etsy has done with the arts and craft industry. when you think of food gift baskets, we think that is going to change and we think meaningful, nostalgic ifs from different cities from different

purveyors and artisans is the future of the industry. >> you are right. when i think about what i want to send someone, it's not an omaha steak or edible arrangement. what kind of opportunities can we offer to be sending people that are more specialized, nostalgic and boutique? a lot of it is folks are in a certain city and have clients in a different city. youou are in new york and have a client in texas and you can send them a pastrami on rye for their office at lunch tomorrow, that's pretty awesome. the flipside. if you are in san francisco and want to send real sourdough bread to someone. then there is the other market -- if it's not about the state you're going to, just the best of the best from the best purveyors is an exciting proposition. that is everything that we seek out. we accept only 3% of the food we try.

most of the recommendations we get for new merchants we should try come from our users, which is pretty awesome. box on thegive a tip site and we get hundreds every day from people who have things they really want to see on the site. i'm excited nerd, about high day, the 14th of march. three -- 14 is pi day. so what is going on? is one of our favorite holidays. we are known for our plethora of amazing pies from around the country. michigan four very pi, key lime pie from florida, crack pie and grasshopper pie from brooklyn. order any pie,u you can send one for three dollars and $.14. >> that's the shipping?

because a crack pie cost more than three bucks. >> it does. if you buy the first pie a isular price, the second one three dollars and $.14 with free shipping. >> i'm going to send everybody else and get a zillion for myself. >> you could do that if you have a separate e-mail address. >> there are two things i'm wanting a -- i'm wondering about. what is the parish ability factor. now, it's bagel awesome. it has traveled overnight to san francisco, not so great anymore. there are a lot of things people presumably want to buy but are not so great. cheesesteak from philly. >> that is gross. shipped cheesesteak was to my door.

we will launch them next week. work with purveyors and figure out ways so that the package gets to your door. some of the items have to be overnighted. some of them don't even need that. one of the best sellers on the site ships in two or three days. >> tons of dry eyes and your kids love that too. i love a cheesesteak. you had it delivered to your door in san francisco and you think it tastes just as good as if you are standing outside on the sidewalk in philadelphia? i say baloney to that. >> we have an internal rule which we call the 90% rule. very hard to reenact exactly what you get when you get something fresh. but if we can get it to the point where you have it and it's still amazing and you still have that nostalgia and it's an amazing, amazing experience,

that is a winner. if it does not get to that point, it does not go to the site. >> we are going to send you some cheesesteaks and i'm going to bring you some downtrodden philadelphia sports fans. >> i want an eagles jersey. i'm not sure about that. alexis ohanian is still here. one of the things we were saving because we do not want to put it front and center at the beginning of the show is bitcoin. cofounder,u help reddit, has become bitcoin central. has honorably forced you to give some thought to the subject. where are you right now on bitcoin? >> one of the largest bitcoins community online is our bitcoin sub reddit. prime minister into bitcoin companies. two'm an investor in

bitcoin companies. i am cautiously optimistic. what makes me most excited about many financial markets, so of the things we have to deal with, like i have two hey dank america $25 to make a wire today. it's ones and zeros. they're making money for doing nothing. >> you could get rid of the friction in the system. >> when you start worrying about currency costs, or is absolutely a place for it. it needs regulation and a cautious hand, but i think the right founders are building some amazing platforms and i hope it means a great future. >> so good to have you here for the full hour. >> cheesesteaks, coming here. >> that's going to do it.

we are looking forward to the cheesesteak. we are also looking forward to tomorrow when the president of the world bank is going to be here. plenty to talk about. the world bank is ready to help the people of ukraine. upthat is going to wrap us for today. a great day. 11:57, so we are one minute behind. bloomberg to get that on the markets. scarlet fu is here. diving straight into derivatives today with our options inside. u.s. stocks aim of some early gains and treasuries are higher despite economic eta showing a rise in retail sales. declining, that's the direction we want to see things moving in. joining me is max breyer, the the mall cap or markets. -- capital markets. >> there are still some jitters

out there and people are nervous about the direction of interest rates. tapering is an overhang. chinese data, so there are some jitters out there. people are taking the good with the bad. >> is now -- the vix is approaching 14. we have seen a make higher lows of last couple of weeks. >> volatility is aching up and that's a function of the popularity of mixed eta's at this point. a lot of people are getting involved in the volatility trade and that exacerbates these moves and pushes them higher. >> let's get your trade here. you are looking at financials, the financial etf. there will be a lot of news in the coming week. >> are several catalysts coming up. the fomc meeting is coming up. there were these stress test the

fed puts on the bank. earnings season is right around the corner. >> what is your trade? trade with aullish good risk-reward profile. 21-22.5 risk reversal. that captures a bulk of earnings by the banks and it's a low trade. >> we are on the markets once again in 30 minutes. "lunch money" is up next. ♪

will do "lunch money." i'm adam johnson. in company, target. theretail giant had one of largest data breaches in history. this a bloomberg businessweek investigation. wall street and washington. a lovely relationship. plowing through retail cells -- sales. is the white house strategy working echo time to get your last run in for the ski season.